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The Dynamics of Wealth, Profit and Sustainable Advantage

Author

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  • Michael G. Jacobides
  • Sidney G. Winter
  • Stefan M. Kassberger

Abstract

This paper shows how idiosyncratic resources can be the basis of sustained profitability and persistent heterogeneity under competitive conditions: Generic inputs purchased in the market become idiosyncratic resources by investments in customization. Analytically, we show how heterogeneous firms co-exist in equilibrium. Computationally, we show that sustainable profits can emerge without "monopolistic" imperfections. We consider how capability heterogeneity, resource customization cost and ease of expansion interact to drive short-run and sustainable profits. Results illustrate that, in an industry evolution context, sustainable profits may represent a small part of total wealth creation, and that changes in factors shaping a sectors' evolutionary trajectory may be more important than changes in factors that determine profits? ultimate sustainability, thus calling into question the familiar emphasis on "sustainable advantage".

Suggested Citation

  • Michael G. Jacobides & Sidney G. Winter & Stefan M. Kassberger, 2010. "The Dynamics of Wealth, Profit and Sustainable Advantage," LEM Papers Series 2010/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2010/22
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    Cited by:

    1. Jinhwan Kim & Hyeob Kim & HyukJun Kwon, 2019. "Corporate Social Responsibility Activity Combinations for Sustainability: A Fuzzy Set Analysis of Korean Firms," Sustainability, MDPI, vol. 11(24), pages 1-20, December.
    2. Nicola Cetorelli & Michael G. Jacobides & Samuel Stern, 2021. "Mapping a sector's scope transformation and the value of following the evolving core," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2294-2327, December.
    3. Phebo D. Wibbens & Nicolaj Siggelkow, 2020. "Introducing LIVA to measure long‐term firm performance," Strategic Management Journal, Wiley Blackwell, vol. 41(5), pages 867-890, May.
    4. Belussi, Fiorenza & Orsi, Luigi & Savarese, Maria, 2019. "Mapping Business Model Research: A Document Bibliometric Analysis," Scandinavian Journal of Management, Elsevier, vol. 35(3).
    5. Alexandre Garel & Arthur Petit-Romec, 2021. "Engaging Employees for the Long Run: Long-Term Investors and Employee-Related CSR," Journal of Business Ethics, Springer, vol. 174(1), pages 35-63, November.
    6. Hong, Paul & Jagani, Sandeep & Kim, Jinhwan & Youn, Sun Hee, 2019. "Managing sustainability orientation: An empirical investigation of manufacturing firms," International Journal of Production Economics, Elsevier, vol. 211(C), pages 71-81.
    7. Björn Michaelis & Shalini Rogbeer & Lars Schweizer & Zafer Özleblebici, 2021. "Clarifying the boundary conditions of value creation within dynamic capabilities framework: a grafting approach," Review of Managerial Science, Springer, vol. 15(6), pages 1797-1820, August.
    8. Phebo D. Wibbens, 2021. "The role of competitive amplification in explaining sustained performance heterogeneity," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1769-1792, October.

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